Companies Moving Away From Amazon and Switching to DTC
To say the world of eCommerce business is changing is somewhat of an understatement. The global disruption of online selling has become a world known phenomenon and many brands are feeling the pressure. However, by understanding this huge shift in consumer behaviour, brands are in a position of power more so than ever before. Moving into the DTC space successfully can create incredible opportunities for brands, such as owning customer data and gaining the ability to analyze their consumer’s behaviours more thoroughly (which is essential for successful digital marketing).
What is Direct to Consumer (DTC)?
Direct to consumer (DTC) is an online selling strategy of building a direct relationship with your customer, which means they are shopping directly from your e-commerce website. Perfect examples of massive DTC brands would be; www.prettylittlething.com, www.hudabeauty.com www.dollarshaveclub.com, www.glossier.com
Benefits of DTC:
- Control over pricing
- Control over customer experience
- Maximizing sales profit by reducing third parties in the value chain
- Ability to grow sales through owning customer data & behaviours
What Does Selling via Amazon Mean? (For Vendors & Sellers):
There are two ways to sell on Amazon:
- 1st Party Vendors
- 3rd Party Sellers
Vendors are described as an exclusive club where an invite only occurs through trade relationships off of Amazon. Amazon essentially buys the products directly from the brands directly and then resell them on their platform; giving them full control over price and inventory. This can become very unappealing if your focus is to grow your DTC model because now another brand an undercut your profits with your own products. The other downfall of 1st party vendors is that you cannot control your customer experience and you cannot control the brand consistency through selling via Amazon.
Many brands have been moving away from Amazon recently because of the customer service linked to Amazon. It is very difficult for a customer to deal with any malfunctioned products, returns or questions about the products that they buy. 3rd party sellers on Amazon are responsible for creating listings, setting prices, and, they also have the authority to decide how the products are shipped out to customers. Fulfilling with Amazon might remove all consistency within the brand's values. For example, if a brand is sustainable and only sources sustainable packaging for shipping, the seller on Amazon might not be able to provide the same packaging and customer experience.
DTC Selling vs. Resellers
The biggest problem with resellers is there is absolutely no control over pricing which leads to amazon undercutting the DTC (direct to consumer) market in order to maximize their own profits. The pricing disparity has a number of serious consequences for brands including:
- Retailers that are honouring recommended retail prices are losing sales
- The brand’s website is losing profits
- The brand’s positioning is harmed by lower pricing (cheapening the brand)
- The brand’s values and experience and position is lowered by inconsistent service
A lot of brands are moving away from Amazon for these reasons which can be detrimental to their DTC brand. Having consistent pricing and brand experience is much more effective than being in too many sales channels where there is no control over what is happening. Gaining control over the brand experience is something retailers should be working towards in order to keep up with the current market trends. During these hard times of inflation and costs for goods being the most expensive it has ever been, companies should be considering how to maximize their profits and reduce third parties in the value chain.
This is where brands can possibly utilize the dark store model that was discussed our previous blog to help increase their shipping capabilities and reduce shipping times. Investing in multiple micro dark store hubs in areas of high volume sales could possibly be the smartest investment for a big brand because they are now able to compete with same-day delivery and fast delivery without having to give up much of their profits and maintain that consistent customer and brand experience.
Amazon was once a very attractive model that wooed in direct to consumer brands for years by offering them a plethora of services including financial backing and inventory management however the benefits have truly been outweighed by the negative impacts being on Amazon can have.
In the past two years a lot of direct to consumer brands have moved away from Amazon citing a combination of reasons including shipping, brand control, price control and because increasingly more often competition has become too difficult dealing with counterfeit items on the market place, and lack of customer data.
To learn more about how OrderGrid 3PL services can help you scale your DTC brand, visit our DTC page.